Stocks Bounce, Euro Surges And Michael Flynn Takes The Fifth

Originally published by AxiTrader

Market Summary

The OPEC deal for a 9 month extension is closer now after Saudi oil minister al-Falih flew to meet his Iraqi counterpart and convince him to agree to the longer production extension. That saw oil higher again overnight and that along with a bounce in military and tech stocks, together with the surge in commodity prices helped stocks have a better night again.

The Dow Jones Industrial Average rose 90 points, to 20894, the S&P 500 is up 13 points, 0.55%, at 2394, and the Nasdaq 100 is roaring up 0.8% to 6133. Stocks in Europe were lower but the FTSE 100 caught a lift to buck the continental trend.

On forex markets the euro (1.1236) got another lift from comments made by German chancellor Angela Merkel that the Euro was too weak because of ECB policies. That reversed what had been a good session for the USD lifting most Forex rates against the dollar – although the pound (1.2996) ran into overhead resistance again. Of note the Aussie (0.7476) finally broke out of the recent downtrend - although tentatively so far.

Gold ($1,260) is also higher on the back of a weaker dollar while copper ($2.59), base metals, and iron ore all lifted. Once again this is being driven from China.

So the wash up is that after a solid rise of 0.76% on the S&P/ASX 200 to close at 5,771 yesterday SPI traders have marked prices higher this morning by 7 points, 0.12%.

On the data front locally I'll be watching the release of the ANZ consumer confidence data, German GDP and a raft of Markit preliminary PMI’s in Europe and the US.

Here's What I Picked Up (with a little more detail and a few charts)

• S&P 500 ++13 (0.52%) 2394 (7.33 Sydney - change since previous day)
• Dow +90 (0.43%) 20894
• Nasdaq +50 (0.82%) 6,133
• SPI 200 +12 (0.20%) 5,794
• AUDUSD 0.7474 (0.4%)
• Gold $1260 (+0.4%)
• WTI Oil $50.73 (+0.79%)

International

• President Trump’s tour continued overnight. It’s clear that Iran is the glue that he is trying to use to get some kind of accord between Israel and Middle Eastern nations but it has been a fairly “on message” visit to the region. Back at home though conspiracy theorists got another fillip overnight with news former Trump NSA Michael Flynn has invoked the 5th Amendment and declined to work with or appear before a Senate committee looking into “that Russia thing”. No big deal for traders today as markets focus on other things.
  

• The Chicago Fed activity index hit its highest level since 2014 last night suggesting the economy is on the mend and the Fed’s entreaty that the growth slowdown in Q1 might actually be transitory. That’s good news for stocks and the economy and it helped the Citibank US economic surprise index lift a little back to 30.7.

• And speaking of growth a Chinese think tank said Q2 growth is going to come in at 6.8% Reuters reported this morning. That’s great news for Australia and it gives me an opportunity to again reiterate I believe Chinese growth will remain solid in this very important political year for president Xi. Worth noting though also is that “Strengthening financial regulations has weakened the effect of monetary policy to a certain extent”.

• Theresa may has discovered this snap British election is not her coronation. She’s been forced to walk back on one of here platform cornerstones after the Tory lead showed signs of collapse in just a few days.

• Dallas Fed president Robert Kaplan gave an important speech last night which supports the notion that the US economy is indeed healing. He’s expecting 2.25% growth in the US this year on the back on consumers and consumption growth. He thinks the US is “moving very close to full employment” – you can see why the headlines were hawkish. He also said inflation is undershooting at present but that “as slack continues to be removed from the labor market, headline inflation should reach, or exceed, the Fed’s 2 percent longer-run objective in the medium term”.

• Oh and on oil Kaplan said he thinks the market will be roughly balanced as OPEC extends and inventories will fall. But he added pointedly “survey participants report that, in a number of locations, current market prices are sufficiently above breakeven levels to encourage further rig count growth, particularly in the Permian Basin”.

Australia

• A cracking rally in local stocks yesterday saw the the miners and industrials driving the market higher. Banks joined in for a little ride and why wouldn’t they when S&P downgrading their smaller rivals unwinds any competitive playing field levelling impact of the Government’s new levy. My sources tell me that the cost of some smaller bank bonds blew out by as much as 20 basis points on the S&P action yesterday.

• More important though at the moment is the rally in base metals, Chinese steel, and iron ore prices which are really supporting the other big sector of the market.

• That means the ASX200 looks like it has turned after last week’s big fall and it certainly helped the SPI get back inside the previous range with the move above 5,771. I’m looking for a move toward 5830 and then I’ll reassess.

• On the day, but unlikely to impact prices, I’ll be watching to see what the ANZ consumer confidence data tells us. As readers know I think that APRA and the RBA have nudged households toward debt reduction and saving rather than consumption. That is showing up in a more pessimistic outlook lately. But I’m hopefully the recent fall can stabilise. If it continues to fall then the domestic sector could come under pressure.

Forex

• If you want to know how much Donald Trump has changed the political narrative then all you have to do is look to Angela Merkel’s Euro comments last night. I really do mean that and when you see things like this you can see why stock traders are still not giving up on Trumponomics even though forex and bond traders are a little.

• Anyway, chancellor Merkel told a group of students “the euro is too weak ... due to the ECB's policy and with this, German goods are comparatively cheap.” That helped Euro head up to a high of around 1.1263 before it pulled back a little. It’s looking very “toppy” right now after this near vertical shift. It’s closing in on my target of 1.1299 – the election night high – so I’m inclined to say near enough on the bulk of my positions. Here’s the chart:

• Elsewhere in forex land GBP/USD ran into the wall near 1.3050/60 resistance again. It really needs to climb above this level to take the next leg highter. Otherwise it looks like it needs a breather – and maybe a pullback toward 1.2890/1.2910. The yen is interesting and quite frankly I don’t have a good feel for it right now. It needs to break 111.70/112.00 to kick on otherwise there seems a chance it could start to fall again.

• US dollar weakness and oil strength helped the Canadian dollar (1.3499) continue what has been a strong reversal off the recent top. That helped the Aussie lift around 0.23% but it’s the Kiwi traders have come for lifting NZD/USD close to 1% to 0.6993 and driving AUD/NZD down 0.73% to 1.0686.

Commodities

• Oil had a bit of an interesting night. There were worries that the Iraqis weren’t on board with the extension of the deal beyond another 6 months. But it looks like the intervention of Saudi oil minister al-Falih, who flew to meet his Iraqi counterpart, has secured Iraq’s agreement. That’s important because it was viewed my many that Iraq was an unwilling participant in the original deal believing it should have been able to pump more to pay for the battle with ISIL. So this is a positive outcome for the Saudis.

• Interestingly though WTI (+0.79%, $50.73) and Brent (+0.3% $53.77) are showing signs that they might have built all the good news into prices already. Naturally I don’t have a sell signal yet on my system. But maybe we need a further production cut to drive prices much higher. That’s especially the case because Goldman Sachs (NYSE:GS) said overnight that it sees a supply overhang in 2018 once the deal expires. Inventory drawdowns remain the key to further moves.

• Here's Brent:

• Base metals are having a cracking rebound in China and that has lifted copper up above $2.60 a pound and taken iron ore higher again. Gold is benefitting from the weakness in the US dollar and continued uncertainty. It’s at $1260 an ounce.

Have a great day's trading.